IMPORTANT POINT
Corporate entity converting from erstwhile individual or partnership members before 21.1.1998 are entitled to benefit of fee continuity for the period for which the fees already paid by the erstwhile individual or partnership members.

Judgment

Shiva Kirti Singh, J.

1. Both the appeals have been preferred under Section 15Z of the Securities & Exchange Board of India Act, 1992 (for brevity ‘the SEBI Act’) against a common judgment and order dated 09th May 2006 rendered by the learned Securities Appellate Tribunal (for brevity ‘the SAT’) in Appeal No.123 of 2004 and other analogous appeals filed by the stock brokers (respondents herein) to challenge the action of the Securities & Exchange Board of India (for short, ‘the SEBI’) denying them the benefit of fee continuity in terms of paragraph 4 of Schedule III to the Securities & Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 [hereinafter called ‘the Regulations’].

2. The SAT formulated the issue falling for determination in the form of a question –

“whether stock brokers who have converted their individual/partnership membership into a corporate entity prior to April 01, 1997 are entitled to the fee continuity benefit in terms of paragraph 4 of Schedule III ….”.

Since the SAT answered the question in favour of the stock brokers (the respondents herein), SEBI is in appeal.

3. The basic facts are common in all the matters inasmuch as the concerned broker was previously member of the Bombay Stock Exchange (for short, ‘BSE’) in his individual capacity or as a partnership firm. He opted to form a corporate entity under the provisions of the Companies Act 1956 prior to April 01, 1997 and carried on the brokers’ business under the name and style of new corporate entity by getting its membership converted through approval of BSE leading to registration by the SEBI as a corporate entity. Undoubtedly, no stock broker or sub-broker can buy, sell or deal in securities unless it is granted Certificate of Registration by SEBI under the Regulations and for that, ordinarily the stock broker is required to pay the requisite fees in the manner provided in the Regulations. In particular, Regulation 10 provides that every applicant eligible for the grant of a certificate shall pay such fees and in such manner as is specified in Schedule III to the Regulations.

4. Although the controversy relates to paragraph 4 of Schedule III, some other paragraphs are also relevant and hence these along with paragraph 4 are extracted hereinbelow :-

“I. Fees to be paid by the Stock Broker.

1. Every stock broker shall subject to paragraphs 2 and 3 of this Schedule pay registration fees in the manner set out below :

(a) where the annual turnover does not exceed rupees one crore during any financial year, a sum of rupees five thousand for each financial year;

(b) where the annual turnover of the stock-broker exceeds rupees one crore during any financial year, a sum of rupees five thousand plus one hundredth of one per cent of the turnover in excess of rupees one crore for each financial year;

(bb) …… …… ……

(c) after the expiry of five financial years from the date of initial registration as a stock-broker, he shall pay a sum of rupees five thousand for every block of five financial years commencing from the sixth financial year after the date of grant of initial registration to keep his registration in force.

2. Fees referred to in clauses (a) and (b) of paragraph 1 above shall be paid –

(a) in respect of the financial year 1992-93 within one month of the commencement of these regulations;

(b) in respect of the financial year beginning on the 1st day of April, 1993 and the following financial years, on or before the first day of October of the financial year to which such payment relates, and such fees shall be computed with reference to the annual turnover relating to the preceding financial year.

3. …… …… ……

4. Where a corporate entity has been formed by converting the individual or partnership membership card of the exchange, such corporate entity shall be exempted from payment of fee for the period for which the erstwhile individual or partnership member, as the case may be, has already paid the fees subject to the condition that the ers